- Rahul Taneja, Ishaan Saluja
The Conundrum of Confusopoly
[Rahul and Ishaan are students at Hidayatullah National Law University.]
Confusopoly refers to a situation wherein the dominant entity spreads misleading information about the competitors in the relevant market in an attempt to mislead the consumers about the quality of the latter’s product. According to multiple reports, confusopoly has a softening effect on competition in the market as it reduces the price competition among entities in the market. Accordingly, creating a confusopoly has been recognized as legitimate grounds for bringing an action under Section 4 of the Competition Act 2002 (Competition Act) in the recent case of Federation of Hotels and Restaurants Association v. MakeMyTrip Go. Although the judgment dealt with various aspects including but not limited to dominance in the digital market, parity clauses, and predatory pricing. This article will be dealing mainly with the aspects of misrepresentation and its relation to the abuse of dominance under Section 4 of the Competition Act.
The Federation of Hotels and Restaurants Association (FHRAI) had filed information under Section 19(1)(a) of the Competition Act against MakeMyTrip and Goibibo (collectively MMT-GO) and Oravel Stays Private Limited (OYO Hotels). The information alleged that there was a concocted arrangement between these entities to delist the hotels that did not follow the arbitrary conditions imposed by these entities.
Facts of the Case
In the present case, MMTGo, which holds a 63% share of the Online Travel Agencies (OTAs) market, had imposed a parity clause in the agreement with the hotel partners. The parity clause refers to a stipulation wherein the agency restricts the seller from offering better or similar rates to its competitors thus restricting the price competition in the market. MMTGo’s parity clause restricted the hotels from offering better rates to other OTAs. Further, the agreement stated that not complying with the parity clause will lead to the delisting of the hotels from the MMTGo platform.
Several hotels had raised complaints about the agreement and were consequently delisted for non-compliance of the same. However, even after being delisted from the platform, these hotels were not removed from the platform and were shown as sold out on the same. The hotels complained that this improper delisting had dissuaded the consumers from looking at the availability on other OTAs and consequently lead to the lesser booking of their inventory. Further, the Director General (DG) concluded that the misrepresentation by MMTGo left little possibility for the hotels to sell their rooms through other platforms which had an adverse impact on the business of these hotels. It also restricted the right to a fair choice on the part of the consumer by creating an information asymmetry in the market vis-à-vis the inventory of these hotels.
Relying on the arguments brought in by the association and the DG report, the CCI observed that a dominant entity engaging in misrepresentation has an adverse effect on competition in the market as it reduces the competition of budget hotels on different OTAs and unfairly restricts the number of room bookings for the concerned hotel. This entire scenario has been referred to in this blog as a confusopoly.
Spreading misleading information about the competitors and their negative effects on the competition in the market has been a leading cause of concern amongst various antitrust regulators. Such a problem takes up an exacerbated effect when it happens in the digital market which is characterized by fast-flowing information and the short attention span of the consumer. To counter the problems associated with unfair practices by large entities in the online market, the European Commission recently came out with the Digital Markets Act (DMA) which aims to prohibit unfair practices done by gatekeepers, it will come into force from May 2023. Gatekeepers are defined under the law as entities that have held a strong and durable economic position in the market enabling them to act as a reliable intermediary between a large number of users and businesses. The legislation puts a special responsibility upon the gatekeepers to act in a fair manner to protect the spirit of competition in the market.
The gatekeeper theory was recognized in India via Matrimony v. Google case. The special responsibility entails a list of non-exhaustive measures that will be considered prohibited under the law. Although engaging in misrepresentation about the competitors has not been explicitly recognized under the law, a case can still be brought considering the objectives and scope of the same. Further, in Roche/Novartis, the dominant entity spread misleading information about the quality of the competitors’ products to hospitals, distributors, and retailers. The court took cognizance of the same and recognized that such practice has an adverse effect on the market of the competitor and initiated abuse investigations against Roche Enterprises.
The CCI agreed with the submissions brought in by FHRAI and the DG report and convicted MMTGo on two major grounds:
That MMTGo is a dominant player in the relevant market because of which the consumers rely heavily on the information that is presented on the platform. Thus, the consumer was dissuaded from searching availability of rooms on alternative platforms because of the act of misrepresentation by MMTGo.
The act was exclusionary as well as exploitative for budget hotels that compete in the relevant market.
In arriving at the final order, the CCI seems to have ignored decisional practice and established precedents that it arrived at in previous cases. In Meru Travel Solutions Private Limited v. ANI Technologies Private Limited and Others, the CCI held that because of the presence of various competitors in the market providing similar technological services and functions, the consumer was not restricted in his choices and could easily switch between the services provided by the aggregators. Further, as per various reports, the effect of the confusion in the minds of the consumer is limited to a great extent when there is a similarity among the entities providing the services in the market, this is because the consumer often uses these services interchangeably and can verify the information provided by these entities without much work. The OTA market, which was delineated as the relevant market, is characterized by multiple platforms providing similar services of online intermediation. The effect of the confusion created by MMTGo was restricted because of the presence of the same.
Further, MMTGo contended that the hotels were delisted due to a technical glitch and that it had no intention to misrepresent their inventory. This was further corroborated by the fact that the hotels were misrepresented only on Make My Trip and not Goibibo, both of which are owned by the same entity. Moreover, the hotels that complained about the inaccurate representation were appropriately delisted from the platform. However, these arguments were not appropriately dealt with and were ignored by CCI in the final order.
The order of the CCI in the FHRAI case with regard to the issue of misrepresentation sets a dangerous precedent that may act as a hindrance to the growth and innovation in novice sectors. The role of the CCI is to maintain the competition in the market and not to act as an arbiter of contractual issues between the parties, adopting such a strategy will lead to unrelated matters being disguised as competition law disputes coming under the ambit of the regulator. The CCI has acted in ignorance of pertinent market realities and the arguments brought forth by the parties. Further, setting a troublesome precedent on an issue that will most likely be exacerbated with the growth of the internet and non-price competition among digital entities will cause more harm than good to the consumers as well as to the entities operating in these sectors.